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  • Muni Nation

    Nosebleed Prices

    Jim Colby ,Portfolio Manager
    January 25, 2012
    • Municipal yields decline to all-time lows (higher bond prices)
    • Traders/investors pause to assess value
    • Strong demand likely to hold valuations near current levels

    The municipal bond market has been on a seven-week march to all-time low rates (yields), as the chart below shows. Given the voracious appetite that investors have had for munis, I would have expected that the natural order would be for the market to take a pause — even to back-up a bit as investors reassess relative value. Traders have begun to refer to bonds as trading at NOSEBLEED prices, which suggests a market moving too high, too fast.

    Is the muni market overbought?  

    Perhaps a little, but cash is still flowing into open-end mutual funds, and the forward calendar of new issues coming to market does not yet satisfy the reinvestment demand lurking in the shadows. Despite these nosebleed prices, it appears that investors continue to view munis as a relative value play, given their high level of creditworthiness.


    This table shows the previous, low yields on AAA-rated general obligation municipal bonds since June 1, 1981, and compares them to Friday's (1/20/12) yields:

    Muni Bond Yields Hit New Lows  


    Previous Low Since 1981* 

    Closing Yield  



    1 Year 

    0.20% on 1/6/12 



    2 Year 

    0.30% on 8/11/11 



    5 Year 

    0.79% on 1/19/12 



    10 Year 

    1.69% on 1/19/12 



    15 Year 

    2.30% on 1/19/12 



    20 Year 

    2.81% on 1/19/12 



    25 Year 

    3.12% on 1/19/12 



    30 Year 

    3.17% on 1/19/12 



    *Since the 6/1/1981 inception of Thomson Municipal Market Data (MMD). MMD provides a broad range of benchmark data and technical/fundamental analysis to the municipal market. Their analytical services offer a unique perspective on the municipal bond market, highlighting key areas of value and opportunity.

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